Calculations of Greeks

in the Black and Scholes Formula

Claudio Pacati
May 15, 2013

Non-dividend paying stock

In the Black and Scholes model the price of an European call option on a non-dividend
paying stock is
C = S N(d1 ) K er N(d2 ) ,

(1)

where S is the stocks price at valuation date, K is the strike price, r is the (constant) spot
rate, = T t is the time to maturity, T the expiry, t the valuation date and
S
log K
+ (r + 12 2 )

,

S

log K
+ (r 12 2 )

d2 =
= d1 ,

d1 =

(2)
(3)

where is the stocks volatility.

Theorem 1. The greeks for the call option are:
delta:

C =

gamma:

C =

theta:

C =

rho:

C =

vega:

VC =

C
= N(d1 ) ,
S
2C
N0 (d1 )
K er N0 (d2 )

=
=
,
S 2
S
S2


SN 0 (d1 )
C
N0 (d2 )

= rK er N(d2 )
= K er r N(d2 ) +
,
t
2
2
C
= K er N(d2 ) ,
r

C
= S N0 (d1 ) = K er N0 (d2 ) .

In order to prove the theorem we collect some common calculations in the following
Lemma 1. It holds
S N0 (d1 ) K er N0 (d2 ) = 0 ,
d2
1
d1
,
=
=
S
S
S

d1
d2

=
=
,
r
r

d2 d1

= ,
t
t
2
d1 d2

= .

(4)
(5)
(6)
(7)
(8)

Proof. First of all, we remember that

1
2
N0 (x) = ex /2 .
2
Statement (4) holds if and only if
S N0 (d1 ) = K er N0 (d2 )

S r
N0 (d2 )
e = 0
K
N (d1 )

log

S
d2 d22
+ r = 1
.
K
2

Notice that the right hand side of the last condition is

d21 d2
1
1
S
1
1
= (d1 + d2 )(d1 d2 ) = (2d1 ) = log
+ (r + 2 ) 2
2
2
2
K
2
2
S
= log
+ r
K
and this completes the proof of (4).
The proofs of the other statements are straightforward calculations.
Proof of theorem 1. For the delta, we have that
C
d1
d2
= N(d1 ) + S N0 (d1 )
K er N0 (d2 )
S
S
S

d1 
0
r 0
= N(d1 ) +
S N (d1 ) K e
N (d2 )
S
= N(d1 )

C =

by (5)
by (4).

(9)

Using (9) and (5) the gamma is

C =

2C
C
d1
N0 (d1 )
0
.
=
=
N
(d
)
=
1
S 2
S
S
S

By (4) it can be also written in the form

C =

K er N0 (d2 )
S

K er N0 (d2 )

.
S2

The theta is
C
d1
d2
= S N0 (d1 )
rK er N(d2 ) K er N0 (d2 )
t
t
t


d
K
er N0 (d2 )
1

= rK er N(d2 ) +
S N0 (d1 ) K er N0 (d2 )
t
2
SN 0 (d1 )

= rK er N(d2 )
2
K er N 0 (d2 )

= rK er N(d2 )
2


N0 (d2 )
r

= K e
r N(d2 ) +
.
2

C =

by (7)
by (4)
by (4)

For the rho we have

C
d1
d2
= S N0 (d1 )
+ K er N(d2 ) K er N0 (d2 )
r
r
r

d1 
r
0
r 0
= K e
N(d2 ) +
S N (d1 ) K e
N (d2 )
r
= K er N(d2 )

C =

by (6)
by (4).

Finally, the vega is

C
d1
d2
= S N0 (d1 )
K er N0 (d2 )




d
1
S N0 (d1 ) K er N0 (d2 )
= K er N0 (d2 ) +

= K er N0 (d2 )

= S N0 (d1 )

VC =

by (8)
by (4)
by (4).

Consider now a forward contract, with strike K and maturity T , i.e. with payoff at time
T given by F (T ) = S(T ) K. Denote by F = F (t) = S(t) K er(T t) = S K er its
price at time t.
Exercise. The Greeks of the forward contract are
delta:

F =

gamma:

F =

theta:

F =

rho:

F =

vega:

VF =

F
=1 ,
S
2F
=0 ,
S 2
F
= rK er ,
t
F
= K er ,
r
F
=0 .

By using the put-call parity relation C P = F and the previous exercise it is straightforward to compute the Greeks for a put option.
Exercise. The Greeks of the put option are
delta:

P =

gamma:

P =

theta:

P =

rho:

P =

vega:

VP =

P
= N(d1 ) ,
S
2P
K er N0 (d2 )
N0 (d1 )

=
,
=
S 2
S
S2


P
SN 0 (d1 )
N0 (d2 )
r
r

= rK e
N(d2 )
=Ke
r N(d2 )
,
t
2
2
F
= K er N(d2 ) ,
r

C
= S N0 (d1 ) = K er N0 (d2 ) .

(In order to better interpret the formaulae, recall that for every x, N 0 (x) = N 0 (x)).

Dividend paying stock

Assume now the stock pays dividends at a constant dividend yield . We know that the
call option price Black and Scholes formula becomes
C = S e N(d1 ) K er N(d2 ) .
Exercise. It holds
S e N0 (d1 ) K er N0 (d2 ) = 0
and formulae (5), (6), (7) and (8) remain the same in the non-dividend paying case.
3

(10)

Exercise. The greeks for the call option are:

C
= N(d1 ) e ,
S
K er N0 (d2 )
2C
N0 (d1 ) e

=
,
=
=
S 2
S
S2


C
N 0 (d1 )

=
rK er N(d2 )
= S e N(d1 )
t
2


N0 (d2 )

r N(d2 ) +
= S e
N(d1 ) K e
,
2
C
=
= K er N(d2 ) ,
r

C
=
= S e N0 (d1 ) = K er N0 (d2 ) .

delta:

C =

gamma:

theta:

rho:

vega:

VC

We know the forward price in the dividend paying case to be F = S e K er .

Exercise. Deduce the Greeks of the forward contract.
Put call parity relation remains formally the same: C P F ; of course all the quantities
involved have to be computed by the formulae for the dividend paying case.
Exercise. Using put-call parity and the previous results, obtain the Greeks of the put option.